Join Live: Non-Farm Payrolls

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Due to the rapid repricing of US interest rate expectations in recent months, the biggest risk from a market perspective is an upside surprise to today’s payrolls number. Although historically payrolls tend to underperform in August, some expect a stronger than expected reading for payrolls for last month, and for this labour market report to paint a less dire picture of the US economy. There are several reasons why job growth could be stronger than expected. Firstly, the labour force participation rate is trending lower, which could keep the unemployment rate artificially low, as people leave the workforce and so do not get counted as unemployed. The drop to the lowest level since 2023 in the last reading for the participation rate is worth watching closely.

Secondly, other signs suggest that the US economy is ticking along nicely. For example, the ISM service sector survey rose to its highest level since February. The gain was driven by a surge in new orders, along with a sharp pick up in business activity, which bodes well for the future. The labour market is a lagging indicator, and if sentiment data is strengthening, then the recent deterioration in the labour market could be a temporary blip.